US datacenters are experiencing a significant shift toward coal-powered energy due to elevated natural gas prices and rapidly growing electricity demand.
According to a research note from financial services firm Jefferies, datacenter operators are racing to connect new capacity to the electrical grid, with accelerated load growth expected during the 2026-2028 period.
This spike in demand is driving an unexpected resurgence in coal generation, which has increased nearly 20 percent year-to-date. The research note, seen by The Register, states:
“We raise our estimate for coal generation by ~11 percent (driven by higher capacity factors), and staying elevated through 2027 on favorable fuel pricing vs gas (particularly for existing fleet).”.
Warnings emerged last year that rising energy demand from the proliferation of data centers in the US risked outstripping available generation capacity, potentially extending the operational life of coal-fired power plants.
In Omaha, one power company reversed plans to stop burning coal to produce electricity, citing the need to serve nearby datacenters. The company determined that decommissioning coal-burning generators at the North Omaha power plant would risk power shortages in the district given rising energy requirements from these facilities.
This reversal, as The Register reported at the time, carries environmental implications. Continued coal combustion affects local air quality near power plants and hinders broader efforts to reduce greenhouse gas emissions. Campaign group Greenpeace has characterized coal as “the dirtiest, most polluting way of producing energy.”
The environmental impact extends globally. A 2024 Morgan Stanley report projected that datacenters will emit 2.5 billion tonnes of greenhouse gases worldwide by 2030 — triple the emissions that would have occurred without the development of generative AI technology.
Natural gas-powered turbine generators had been the favored choice to power the ongoing datacenter build boom, especially as these can be sited directly on campus to provide local generation. However, current gas prices have made this option less economically attractive.
As the Financial Times notes in an article on whether datacenters are a setback for the green energy transition, developers tend to favor power sources that are easily available for their initial build-out.
If operators can get their facility online as soon as possible while securing renewable energy commitments, they will, but the stopgap will be whatever is to hand, and this is likely natural gas or coal.
The current federal policy environment presents additional challenges for renewable energy adoption. The Trump administration has implemented measures that affect renewable energy development, including freezing approval processes for wind energy projects and announcing restrictions on new solar and wind power projects, with officials citing land use and cost concerns.
This policy direction contrasts with research indicating that renewable energy could power datacenters at lower cost than fossil fuels or emerging technologies such as small modular reactors (SMRs), which are gaining attention, despite being largely untested.
Yet this isn’t a consideration for Washington at the moment. Last month, US Interior Secretary Doug Burgum told a natural gas industry event: “The real existential threat right now is not a degree of climate change. It’s the fact that we could lose the AI arms race if we don’t have enough power.”
Similarly, Secretary of Energy Chris Wright told an energy conference in March: “The Trump administration will treat climate change for what it is, a global physical phenomenon that is a side effect of building the modern world.” ®
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